In California, Arbitration Agreement Valid Despite Lack of Rules

Why it matters: California employers scored a victory with the Peng decision, with the court making clear that a procedural error in failing to include the relevant rules governing an employment arbitration agreement should not prevent an employer from enforcing the terms of the agreement.

Detailed Discussion
An arbitration agreement in an employment contract is enforceable, even though a copy of the relevant rules was not included, the California Court of Appeal recently ruled, reversing a trial court’s denial of the employer’s motion to compel arbitration. Anna Peng accepted a position as an assistant bank manager at First Republic Bank and signed an employment agreement that included an arbitration agreement. The agreement read, “The undersigned Employee [plaintiff], Assistant Manager, and [defendant] agree that any claims either party has arising out of or relating to the Employee’s employment shall be resolved by final and binding arbitration. Arbitration shall apply to any and all common law or statutory claims, with the exception of any claims that the Employee may have for workers’ compensation benefits or unemployment compensation benefits.” After Peng was terminated, she filed a complaint against the bank alleging race and gender discrimination and equal pay discrimination, among other claims. First Republic responded with a motion to compel arbitration.

But a trial court denied the motion. Because the bank failed to attach the applicable rules of the American Arbitration Association to the agreement and the agreement allowed the bank the unilateral authority to make modifications, the court found the agreement both procedurally and substantively unconscionable.

While the absence of the AAA rules made “a bit” of procedural unconscionability, the court noted the rules are conveniently available on the Internet.

“Plaintiff does not argue that there are any other provisions in the Agreement that would support a finding of procedural unconscionability,” the court wrote. “Nor does she identify any feature of the AAA rules that prevent fair and full arbitration. Thus, we find the failure to attach the AAA rules, standing alone, is insufficient grounds to support a finding of procedural unconscionability.”

The plaintiff similarly failed to establish substantive unconscionability, despite the bank’s power to unilaterally modify the agreement. The implied covenant of good faith and fair dealing precluded First Republic from making changes that would have undermined Peng’s rights, the court said, or modifying the agreement once her claim had accrued.

But the bank did not make any modifications to the agreement, nor did Peng allege that the employer breached its duty of good faith. Therefore, the court concluded the agreement was not “so one-sided as to ‘shock the conscience.’ ”

Government Shutdown Ends: What Now?

Why it matters: With the shutdown lasting more than two weeks, federal courts and agencies returned to a mounting pile of work. Most agencies already faced a backlog and the shutdown pushed them even further behind – leaving employers waiting to see how it all plays out.

Detailed Discussion
The first federal government shutdown in 17 years has ended after 16 days. As federal agencies get back up and running, the question remains: what kind of impact will the closure have on employers?

For employment-related cases that had already been filed, the federal courts remained open for the duration of the shutdown. But federal agencies functioned at various stages of operation.

The National Labor Relations Board closed, but allowed for tolling of time to file documents (including briefs and appeals) and the indefinite postponement of hearings before administrative law judges. All elections and pre- and post-election hearings were similarly postponed. Less than one dozen employees remained at work for the Board, which left its emergency contact program and Office of the Inspector General hotline open.

At the Equal Employment Opportunity Commission, a skeleton crew of just over 100 employees continued to docket new charges and work on litigation where a continuance had been denied by the courts. The majority of the agency’s operations – investigating new charges, responding to questions from the public, conducting mediation or holding hearings, for example – ceased. The agency cautioned employees, however, that the shutdown did not extend the statute of limitations in which to file a charge of discrimination.

All but 3,000 of the Department of Labor’s 16,000 workers were furloughed, leaving just 6 employees in the Wage and Hour Division handling immediate investigations. Just 230 employees remained at work for the Occupational Safety and Health Administration, which the agency said was sufficient to respond to employee reports of workplace fatalities, hospitalizations, and imminent danger situations, as well as hazard complaints.

As for immigration-related issues, E-Verify was unavailable during the shutdown, leaving employers unable to verify employment eligibility. However, U.S. Citizenship and Immigration Services offices remained open worldwide, holding interviews and appointments as scheduled.

Tenth Circuit Rules on Religious Accommodations Under Title VII

Why it matters: Taking the pressure off of employers in the Tenth Circuit, the decision makes clear that the burden rests on an applicant or employee to initially inform an employer of the religious nature of his or her conflicting practice and the need for an accommodation. The panel cited similar decisions from the Third, Fourth, Seventh, and Eighth Circuits, but in a dissent, Senior Judge David M. Ebel noted contrary rulings from the Ninth and Eleventh Circuits. With the Abercrombie opinion broadening a circuit split, some commentators have suggested that the issue could be on track for the U.S. Supreme Court.

Detailed Discussion
The burden is on an applicant or employee to initially inform employers of the need for a religious accommodation, the Tenth U.S. Circuit Court of Appeals has ruled, reversing summary judgment in a Title VII discrimination suit.

The case involved Samantha Elauf, who applied for a job at Abercrombie Kids in Tulsa, Oklahoma During her two interviews, Elauf wore a hijab, or headscarf. But at no point did she inform the employer that she was a practicing Muslim or ask if the headwear would be an issue.

Abercrombie declined to hire Elauf because of the hijab, which conflicted with the company’s “Look Policy,” the retailer’s dress code for employees intended to promote and showcase the Abercrombie brand. On behalf of Elauf, the Equal Employment Opportunity Commission brought suit against the retailer, alleging religious discrimination in violation of Title VII.

A federal district court granted summary judgment for Elauf and the EEOC. In a damages-only jury trial, the plaintiff won $20,000.

But in a 95-page decision, the Tenth Circuit reversed, holding that the plaintiff failed to set forth a prima facie case of discrimination because Elauf had not requested a religious accommodation.

“Ms. Elauf never informed Abercrombie prior to its hiring decision that her practice of wearing a hijab was based on her religious beliefs and (because she felt religiously obliged to wear it) that she would need an accommodation for the practice, because of a conflict between it and Abercrombie’s clothing policy,” the divided panel concluded.

The requirement to provide a reasonable accommodation to an employee only arises when an actual conflict exists, the court emphasized. Although Abercrombie employees assumed that Elauf wore a headscarf because she was a practicing Muslim, she did not inform the company that her practice of wearing a hijab necessitated an accommodation, so “[n]othing was present to accommodate.”

Employers are placed in a Catch-22 by Title VII, the panel noted. On one hand, the EEOC “discourages employees from making inquiries in the first instance regarding the religious beliefs or practices of applicants (and presumably employees) because ‘an applicant’s religious affiliation or beliefs. . . are generally viewed as non job-related and problematic under federal law.’ ” The agency has further cautioned employers against stereotyping or making other assumptions.

On the other hand, without knowledge of an employee’s need for a religious accommodation, it is hard for employers to provide one. As the court asked, “how is an employer to know that applicants or employees are engaged in a practice for religious reasons, unless they inform the employer?”

Even if an employer has a general awareness of a particular group’s religious practices and beliefs, “the employer would still not know whether the conflicting practice in question actually stemmed from religious beliefs unless the particular applicant or employee informed the employer, because under Title VII. . . religion is a uniquely personal and individual matter,” the panel wrote. For example, not all Muslim women wear a hijab and not all women wear a headscarf because of religious beliefs, the court noted.

“Thus, it is only after an employer is put on notice of the need for a religious accommodation that the EEOC’s policy materials encourage it to actively engage in a dialogue with applicants or employees concerning their conflicting religious practice and possible accommodations that the employer might provide for it,” the court said.

The court declined to rule on whether the employee or applicant had to be the source of the employer’s notice of the need for a religious accommodation. In Elauf’s case, “there is no genuine dispute of material fact that no Abercrombie agent responsible for, or involved in, the hiring process had such actual knowledge – from any source – that Ms. Elauf’s practice of wearing a hijab stemmed from her religious beliefs and that she needed an accommodation for it.”

Even though Abercrombie assumed correctly that Elauf was a practicing Muslim, that did not provide the retailer with sufficient notice of the need for a religious accommodation, the court said, and the fact that Elauf’s headscarf was visible did not change the equation.

In addition to calling its interpretation “the most natural reading” of the language of Title VII, the Tenth Circuit found support in the EEOC’s own regulations and policy documents (such as its compliance manual and best practices guidance) as well as analogous requirements under the Americans with Disabilities Act.

In addition to reversing summary judgment for the EEOC, the panel entered judgment for Abercrombie.

California Bill Raising Damages in Mixed-Motive Cases Vetoed

Why it matters: When the California Supreme Court issued the Harris decision, many commentators described it as a compromise – heightening the standard of causation for plaintiffs in employment discrimination claims and providing a mixed-motive defense for employers, while still leaving open the door for limited damages for employees. SB 655 would have tipped the scales in favor of employees adding an additional $25,000 in statutory penalties as well as the cost of expert fees, even where an employer successfully established a mixed-motive defense. Governor Brown’s veto leaves the balance intact.

Detailed Discussion
In a near miss for employers, California Governor Jerry Brown vetoed legislation that would have increased the potential damages available for employees in mixed-motive employment discrimination cases.

In February, the California Supreme Court readjusted the standard in such suits in Harris v. City of Santa Monica. The Harris case established that the proper standard of causation in a Fair Employment and Housing Act discrimination or retaliation claim is “a substantial motivating factor” and not merely “a motivating factor.” The court also held that employers are also entitled to a mixed-motive defense, arguing that the action was based partly on a valid reason and partly on a prohibited reason (such as pregnancy discrimination or gender bias).

Under Harris, an employer must plead a mixed-motive defense in the answer to the employee’s complaint. If successful, an employer can avoid monetary damages but remains on the hook for injunctive relief and attorney’s fees.

In response, state lawmakers introduced SB 655, which codified the Harris requirement that a plaintiff must establish that a discriminatory motive was a “substantial motivating factor” behind the employment action. The bill defined “substantial motivating factor” as “a factor that contributed to the employment action or decision. It shall be more than a remote or trivial factor, but need not be the only or main cause of the employment action or decision. Evidence that the person claiming to be aggrieved had a protected characteristic at the time of the employment action or decision is not, by itself, sufficient proof that the protected characteristic was a substantial motivating factor.”

However, even where an employer successfully established a mixed-motive defense, the legislation would have imposed a statutory penalty of $25,000 and fees for expert witnesses – on top of the still-available injunctive relief and attorney’s fees and costs. (The bill left in place Harris’ denial of reinstatement, back pay or declaratory relief.)

A provision further allowing plaintiffs to receive unlimited noneconomic damages was removed prior to sending the bill, cosponsored by the California Employment Lawyers Association, to the Governor’s desk.

Employers managed to dodge the increased damages, however, with Governor Brown’s veto following passage of the bill by both the state Senate and Assembly. “I think Supreme Court Justice Goodwin Liu got it right in his well-reasoned opinion in that case and I see no reason for further legislative intervention,” the Governor wrote in his veto statement.

Employer Could Be Liable Under SCA for Reading e-mails

Why it matters: Although the parties settled the case after the court’s ruling on Verizon’s motion to dismiss, the order presents a serious cautionary tale for employers. Accessing an employee’s personal e-mail account – even on a company-issued device – could open an employer up to liability under state privacy protections or, as the Ohio federal court held, under the Stored Communications Act. Company policies addressing the use of devices and electronic communications can help to protect employers by putting employees on notice that an employer may access their data or by requiring consent for such access.

Detailed Discussion
Employers may be liable under the Stored Communications Act for reading a former employee’s e-mails on a company-issued device, according to a ruling from an Ohio federal court.

Sandi Lazette was a Verizon employee. She was issued a company BlackBerry but had permission to use it for her personal Gmail account. When she left the company and returned the smartphone, she thought she deleted her account from the device. Her attempt failed, however.

Her former supervisor, Chris Kulmatycki, allegedly spent the next 18 months reading approximately 48,000 of Lazette’s personal e-mail messages – communications about her family, career, financials, health, and other personal matters. When she learned of Kulmatycki’s actions, Lazette changed her password and filed suit. She claimed both Kulmatycki and Verizon violated the Stored Communications Act, Title III, and Ohio’s privacy law by reading her e-mails without permission.

Under the SCA, fines and jail time may attach to whomever “intentionally accesses without authorization a facility through which an electronic communication is provided; or. . . intentionally exceeds an authorization to access that facility; and thereby obtains. . . access to a wire or electronic communication while it is in electronic storage in such system.” 18 U.S.C. § 2701(a)(1)-(2).

Pointing to the legislative history of the SCA, Verizon argued that claims against it should be dismissed. The statute was aimed at high-tech hackers, the defendant said, not an employer.

Finding the argument “not persuasive,” U.S. District Court Judge James G. Carr wrote that while the “primary purpose” of the SCA was to create a cause of action against hackers, “ ‘[p]rimary’ does not mean ‘exclusively.’ ”

And even though the BlackBerry was a company-owned device, neither Kulmatycki nor Verizon had Lazette’s permission to read the messages, the court said. “[T]he mere fact that Kulmatycki used a company-owned blackberry to access plaintiff’s e-mails does not mean that he acted with authorization when he did so,” Judge Carr wrote.

Further, Lazette’s failure to successfully delete the account from her smartphone didn’t constitute authorization. Consent under the SCA need not be specific, the court acknowledged, but there “is a difference between someone who fails to leave the door locked when going out and one who leaves it open knowing someone [will] be stopping by.” The defendants could not shift the focus from Kulmatycki’s actions to the plaintiff’s failure.

The defendants did not challenge the fact that Kulmatycki was acting within the scope of his employment when he accessed the plaintiff’s e-mails, the court noted, leaving Verizon potentially responsible under a theory of vicarious liability.

Judge Carr did limit the extent of potential liability based on whether or not the e-mail messages were open when Kulmatycki read them. Messages that had already been opened by Lazette and not deleted did not meet the SCA’s requirement of “electronic storage,” he said, which is intended solely for backup protection.

Instead, Lazette’s claims could only move forward based upon those messages that Kulmatycki opened before she did.

The court also dismissed the plaintiff’s Title III claims but allowed her Ohio-based privacy violation cause of action to proceed. “Her e-mails were highly personal and private,” Judge Carr noted, and a reasonable jury could find that Kulmatycki’s reading of tens of thousands of such private communications was “highly offensive.”

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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